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Lanxess AG, a German specialty chemicals company based in Cologne, Germany, recently announced that it had agreed to buy Coca-Cola Co.-supplier Emerald Kalama— the world’s largest producer of benzoic acid—for $1.08 billion. Lanxess is moving forward from what was once a mishmash of chemical assets from Bayer AG.

The acquisition from the private-equity firm American Securities adds a supplier of preservatives used in food and drinks, following Lanxess’ pass on the $4.6 billion sale of Lonza Group AG’s Specialty Ingredients business. Emerald Kalama adds a company in Lanxess’s wheelhouse of anti-bacterial solutions, without overpaying, its CEO Matthias Zachert said.

Lanxess AG is said to be paying roughly nine times earnings, after taking into account synergies following Emerald Kalama’s integration. The price appears to be reasonable, one analyst said, after the recent disposal by Lonza for an implied 13 times.

The sale also attracted interest from several buyout firms, according to a Bloomberg News report in December. These firms included HIG Capital, Rhone Capital and TPG

This divestment is American Securities’ exit from Emerald Performance Materials, a diversified group it bought in 2014 and has broken up. Dystar Global Holdings bought Emerald’s polymer additives chemicals unit in 2016, and Huntsman Corporation purchased the resin-ingredients business earlier in 2021.

The transaction also implies that industrial companies are looking at mergers in advance of developed economies restarting after COVID-19 dissipates. Per Bloomberg, the value of all deals year-to-date in North America ($710 billion) is 39% higher than in the same period last year.

Emerald Kalama generates 45% of its revenue in the region, while Lanxess makes only around 23%.

Lanxess shares have outpaced other European chemical rivals since March 2020. That’s about the time when the pandemic started to take hold on the continent. The German company has climbed 67% in the period, nearly two times that of the Stoxx 600 Chemicals Index.

Zachert said to stock analysts on a conference call that the goal is to boost sales to consumer markets. About three-quarters of Emerald Kalama’s sales are of consumer specialties, including sodium benzoate for food and animal feed preservation, and aroma chemicals for flavors and fragrances. The CEO said that the balance of sales are of industrial specialties, including benzoate plasticizers complements phthalate-free plasticizers from Chemtura.

On the conference call, Zachert said companies in China are increasingly making benzoic acid. But he contended that Emerald Kalama’s strength is its integration into high-end derivatives. He cited the fact that after a $40 million upgrade of its Rotterdam site in 2017, Emerald Kalama is perhaps the only company in the world that can make ultra-high-purity benzoates.

Lanxess has a Full Chemicals Acquisition Pipeline

Lanxess has built a pipeline of nearly a dozen possible acquisition targets and is choosing a more gradual approach, Zachert said, instead of wagering everything on Lonza’s chemicals division, which was bought this month by Bain Capital and Cinven.

“I’m not entering an acquisition phase looking solely at one target,” he said, declining to discuss specific targets. “That’s something that always leads to a situation where you over pay. This is not my style.”

Lanxess dates back to 2004. Its CEO says that the company is just halfway through its transformation, after selling the synthetic rubber and other commodity businesses. Returns have improved to 14% from 4%, despite the pandemic.

“The journey is not finished yet,” said Zachert, who just signed another five-year contract. “I see a company that’s halfway there.”

Lanxess had earlier told investors that it has about $2.5 billion available for acquisitions in chemicals. On a recent conference call, one analyst asked whether the company is done acquiring, following the deals for Emerald Kalama and two small French disinfectant makers it’s also acquiring. Zachert said that the process of integrating Emerald Kalama should be “speedy” and that Lanxess continues to monitor a list of about 10 potential acquisition targets.

“Our financial power is still there,” he said.

Emerald Kalama is a global manufacturer of specialty materials such as benzaldehyde and downstream chemicals. The company concentrates its efforts on flavor and fragrance ingredients, non-phthalate plasticizers, antimicrobials, synthesis intermediates, and rubber additives.

Emerald Kalama manufactures benzoic acid via toluene oxidation at its original plant in Kalama, Washington. It also manufactures benzoic acid at a facility in Rotterdam, the Netherlands, that it acquired from DSM in 2010.

Emerald Kalama Chemical has about 500 employees, with locations in the U.S. and Europe. Emerald Kalama is a business group of Emerald Performance Materials.

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